<PAGE>
METALCLAD CORPORATION
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD SEPTEMBER 18, 1998
(Approximate Mailing Date: August 14, 1998)
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders (the Meeting ) of METALCLAD CORPORATION, a
Delaware corporation (the Company ), will be held at 2
Corporate Plaza, Suite 125, Newport Beach, California 92660, on
Friday, September 18, 1998 at 10:00 A.M. local time, for the
following purposes:
1. To elect five members of the Board of Directors to
serve until the next Annual Meeting of Stockholders;
2. To consider and act upon the ratification of the
appointment of Arthur Andersen LLP as the independent public
accountants of the Company for the year ending December 31,
1998; and
3. To transact such other business as may properly come
before the Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on
April 14, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at the Meeting.
Only holders of the Company's Common Stock at the close of
business on the record date are entitled to vote at the Meeting.
You are cordially invited to attend the Meeting in person.
However, whether you plan to attend or not, we urge you to
complete, date, sign, and return the enclosed proxy promptly in
the envelope provided, to which no postage need be affixed if
mailed in the United States, in order that as many shares as
possible may be represented at the Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bruce H. Haglund
---------------------------
Bruce H. Haglund, Secretary
Newport Beach, California
August 14, 1998
YOUR VOTE IS IMPORTANT.
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THANK YOU FOR ACTING PROMPTLY.
METALCLAD CORPORATION
1<PAGE>
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
PRELIMINARY PROXY STATEMENT
August 14, 1998
-----------------------------
SOLICITATION OF PROXY, REVOCABILITY, AND VOTING
General
This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Metalclad
Corporation, a Delaware corporation (the Company ), to be used
at the Annual Meeting of Stockholders (the Meeting ) of the
Company to be held at the principal offices of the Company
located at 2 Corporate Plaza, Suite 125, Newport Beach,
California 92660, on Friday, September 18, 1998 at 10:00 A.M.
local time, or any adjournment thereof. This Proxy Statement
and accompanying form of proxy are first being mailed to
stockholders on or about the date shown above.
Revocability
Any proxy given pursuant to this solicitation may be
revoked by the person giving it at any time before its exercise
by notice in writing to the Secretary of the Company prior to
the Meeting or by attending the Meeting and voting in person.
Unless the proxy is revoked, the shares represented thereby will
be voted as specified at the Meeting or any adjournment thereof.
Solicitation
This Proxy Statement is being mailed on or about April 14,
1998 in connection with the solicitation of proxies by the Board
of Directors of the Company. The entire cost of soliciting
proxies will be borne by the Company. Proxies may be solicited
by mail or telegraph, or by the directors, officers or regular
employees of the Company in person or by telephone without
additional compensation for such services.
Vote of Proxies
Subject to revocation, all shares represented by duly
executed proxies will be voted for the election of the nominees
named above as directors unless authority to vote for the
proposed slate of directors or any individual director has been
withheld. With respect to the proposal to approve the
appointment of Arthur Andersen, LLP as the Company's independent
accountants, all such shares will be voted for or against, or
not voted, as specified on each proxy. If no choice is
indicated, a proxy will be voted for the proposal to ratify the
2<PAGE>
appointment of the accountants. If no choice is indicated, a
proxy will not be voted on such proposal. If any other matters
are properly presented at the Meeting, the Proxy will be voted
in accordance with the best judgment and in the discretion of
the Proxy Holders.
Voting and Record Date
Only stockholders of record of the Company's $.10 par value
common stock ( Common Stock ) at the close of business on April
14, 1998 will be entitled to notice of and to vote at the
Meeting. As of that date, the total number of shares issued and
outstanding of Common Stock was 30,063,870.
In voting on matters other than the election of directors,
each share of Common Stock entitles the holder thereof on the
record date to one vote at the Meeting. The appointment of the
accountants will require the affirmative vote of a majority of
the shares present at the Meeting in order to be valid and
binding.
With respect to the election of directors of the Company,
the stockholders have cumulative voting rights, whereby any
stockholder may multiply the number of shares he is entitled to
vote by the number of directors to be elected and allocate his
votes among the candidates in any manner he chooses. The five
nominees receiving the highest number of votes shall be duly
elected. There are no conditions precedent to the exercise of
the right to cumulate votes in the election of directors of the
Company; stockholders may exercise such cumulative voting
rights, either in person or by proxy, with or without advance
notice to the Company.
QUORUM AND PRINCIPAL SHAREHOLDERS
The presence in person or by proxy of the holders of a
majority of the total outstanding voting shares is necessary to
constitute a quorum at the Meeting. Approval of the proposals
to be presented at the Meeting, except for the election of
directors (as discussed above), will require the affirmative
vote of the holders of a majority of the shares present at the
Meeting.
The following table sets forth certain information as of
April 14, 1998 relating to the beneficial ownership of the
Company's Common Stock by (i) all persons known by the Company
to beneficially own more than 5% of the outstanding shares of
the Company's Common Stock, (ii) each director, director
nominee, and officer of the Company, and (iii) all officers and
directors of the Company as a group.
3<PAGE>
<TABLE><S> <C> <C>
Name and Address of Amount and Nature of Percent
Beneficial Owner (1)(2)(3) Beneficial Ownership of Class (4)
-------------------------- -------------------- -----------
Grant S. Kesler 1,695,000 (5) 5.0%
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
USA
Javier Guerra Cisneros 746,095 (6) 2.2%
Bosques de Cidros No. 46, Suite 204
Col. Bosques de las Lomas
05120 Mexico, D.F.
Mexico
Juan B. Morales, Jr. 100,000 (7) 0.3%
Calzada del Valle No. 1 Ote.
Col. Del Valle
66220 Garza Garcia, N.L.
Mexico
Bruce H. Haglund 256,000 (8) 0.8%
2010 Main Street, Suite 400
Irvine, California 92614
USA
Anthony C. Dabbene 501,000 (9) 1.5%
2 Corporate Plaza, Suite 125
Newport Beach, California 92660
USA
Jose Akle Fierro 100,000 (10) 0.3%
Jose Vasconcelos 218-6
Col. Hipodromo Condesa
06140 Mexico, D.F.
Mexico
All Officers and Directors 3,398,595 (11) 10.1%
as a Group (6 persons)
</TABLE>
------------------------
(1) Beneficial ownership is determined in accordance with Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the
Exchange Act ), and is generally determined by voting power
and/or investment power with respect to securities. Except as
indicated by footnote, and subject to community property laws
where applicable, the Company believes the persons named in the
table above have sole voting and investment power with respect
to all shares of Common Stock shown as beneficially owned by
them.
(2) A person is deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date
4<PAGE>
of this Proxy Statement upon the exercise of warrants or
options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by
such person (but not those held by any other person) and which
are exercisable within 60 days from the date of this Proxy
Statement have been exercised.
(3)Unless otherwise indicated, the address of each stockholder
is 2 Corporate Plaza, Suite 125, Newport Beach, California
92660.
(4) Assumes 33,553,870 shares outstanding, including 30,063,870
shares currently outstanding and 3,480,000 issuable upon
exercise of presently exercisable stock options and common stock
purchase warrants held by the above-listed stockholders.
(5) Includes 1,395,000 shares issuable upon exercise of
presently exercisable stock options, exercisable at a range of
$1.50 - $2.25 per share.
(6) Includes 650,000 shares issuable upon exercise of presently
exercisable stock options, exercisable at a price range of $1.50
- $2.25 per share.
(7) Represents 100,000 shares issuable upon exercise of
presently exercisable stock options, exercisable at $1.25 per
share.
(8) Includes 250,000 shares issuable upon the exercise of
presently exercisable stock options, exercisable at a price
range of $1.50 - $2.25 per share.
(9) Includes 500,000 shares issuable upon the exercise of
presently exercisable stock options, exercisable at a price
range of $1.25 - $3.625 per share.
(10) Represents 100,000 shares issuable upon exercise of
presently exercisable stock options, exercisable at $1.25 per
share.
(11) Includes 3,490,000 shares issuable upon exercise of
presently exercisable stock options, exercisable at a price
range of $1.25 - $3.625 per share.
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of
directors shall be determined by the directors or the
stockholders. The directors have set the number of directors
for the ensuing year at nine. Five members of the Board of
Directors are to be elected at the Meeting. Vacancies on the
Board during the year may be filled by the majority vote of the
directors in office at the time of the vacancy without further
5<PAGE>
action by the stockholders.
The Board of Directors has nominated Jose Akle Fierro,
Javier Guerra Cisneros, Anthony C. Dabbene, Grant S. Kesler, and
Juan B. Morales for election as directors for the ensuing year.
It is the intention of the persons named in the enclosed
form of proxy to vote such proxies for the election of the
nominees listed herein. The proposed nominees are willing to
serve for the ensuing year, but in the event any nominee at the
time of election is unable to serve or is otherwise unavailable
for election, it is intended that votes will be cast pursuant to
the accompanying proxy for substitute nominees designed by the
Board of Directors.
Cumulative voting applies to the election of directors.
The five nominees receiving the highest number of votes shall be
duly elected.
Information about Nominees and Directors
The following sets forth certain information for each
person who is a director or nominated for election to the Board
of Directors:
<TABLE>
<S> <C> <C> <C>
Director
or Officer Current Position
Name Age Since with the Company
----------------------------------------------------------------------------
Grant S. Kesler 54 1991 President, Chief Executive
Officer, Director
Anthony C. Dabbene 46 1996 Chief Financial Officer,
Director
Javier Guerra Cisneros 51 1994 Vice President-Mexican
Operations, Director
Jose Akle Fierro 52 -- Director
Juan B. Morales 46 -- Director
</TABLE>
Grant S. Kesler has served as a Director of the Company
since February 1991 and has been Chief Executive Officer since
May 1991. From 1982 to May 1991, he was employed by Paradigm
Securities, Inc., a company he formed in 1982. In 1975, he was
General Counsel to Development Associates, a real estate
development firm. Earlier, he was engaged in the private
practice of law, served as an assistant attorney general for the
State of Utah, and served as an intern to the chief justice of
the Utah Supreme Court. Mr. Kesler is a graduate of the
University of Utah College of Law and a member of the Utah
State Bar Association.
6<PAGE>
Anthony C. Dabbene has been the Chief Financial Officer for
the Company since January 1996 and a Director since May 1997.
Prior to his employment with the Company, Mr. Dabbene was
employed by LG & E Energy Corp. for 10 years, including service
as Vice President and Controller to the Energy Services Group.
From 1973 to 1985, he was employed by EBASCO Services
Incorporated, where he was Manager - Finance and Administration
for the Western region from 1981 to 1985. He received a B.B.A.
degree in Accounting from St. Francis College and an M.B.A.
degree from Long Island University, New York.
Javier Guerra Cisneros has been a Director of the Company
since May 1994 and the Director General of QUIMICA OMEGA since
its formation in 1981. He also founded and was the President of
the Institute on Industrial Hazardous Waste, a non-profit
organization that promotes public awareness of the Mexican
environmental regulations through its publication DIP. Since
1990, Mr. Guerra, through QUIMICA OMEGA, has been one of the
pioneers in the implementation in Mexico of the program to use
hazardous wastes as supplemental fuel in cement kilns. He has
more than 10 years of experience on environmental regulations
and handling of hazardous wastes in Mexico and the United States
as well as in the compliance of Mexican environmental
legislation. He has participated in multiple conferences on
ecological matters, including seminars sponsored by the EPA and
SEDESOL. Mr. Guerra is a business administration graduate from
the Universidad Iberoamericana in Mexico City, with studies in
international marketing at the St. Gallen University in
Switzerland. He has also made specialized engineering studies
in the areas of combustion equipment and chemicals.
Jose Akle Fierro has been a Director of the Company since
May 1997. Mr. Akle has spent most of his professional career in
the financial sector, during which he worked for Citicorp for
seven years. His last position there was Investment Banking
Head for Mexico. Dr. Akle has been involved in venture capital
in Mexico since 1986, as a fund manager and investor. At
present, he is the largest shareholder and President of a
telecommunications venture in Peru, a software development
company in Mexico and an investment advisory services
corporation. He is on the Board of several processed food
companies and a venture capital fund. Dr. Akle s academic
background includes two engineering degrees, one in
communications in Mexico and another in systems from France. He
holds a Doctor of Engineering from the Universite De Grenoble,
Grenoble, France.
Juan B. Morales, Jr. has been a Director of the Company
since May 1997. Mr. Morales spent 4 years working in various
divisions of Alfa Group from 1976 through 1980. He represented
Ferrostaal and Thyssen from Germany, negotiating for both
government and private industry until 1980. Mr. Morales then
entered the private sector, owning and directing his own steel
scrap processing and wine distribution businesses in Mexico.
7<PAGE>
Mr. Morales academic background includes a BS in economics,
from the Wharton School of Business and an MBA from IMEDE in
Laussane, Switzerland.
Committees and Compensation of the Board of Directors
The Board of Directors held two meetings during the period
May 1, 1997 to December 31, 1996. Each director attended at
least 75% of the total number of Board Meetings held during the
year ended May 31, 1996. Board members who are not employees or
consultants to the Company are presently entitled to receive
$1,000 for their attendance at Board meetings, with a minimum
annual fee of $7,000, and members of the Board of Directors have
received nonstatutory stock options pursuant to the Company's
Non-Qualified Stock Option Plan, nonstatutory stock options
granted other than pursuant to a plan, the Company's 1992
Omnibus Stock Option and Incentive Plan, and the 1993 Omnibus
Stock Option and Incentive Plan, and the 1997 Omnibus Stock
Option and Incentive Plan.
In November 1992, the Board approved the creation of an
Executive Committee authorized to be comprised of up to five
members of the Board. The Executive Committee has all the powers
and authority of the Board in the management of the business and
affairs of the Company, including, without limitation, the power
and authority to authorize the issuance of stock, except with
respect to (i) approval of any action which also requires
stockholders' approval or approval of the outstanding shares;
(ii) filling of vacancies on the Board or in any committee;
(iii) fixing compensation of the directors for serving on the
Board or on any committee; (iv) amendment or repeal of Bylaws of
the adoption of new Bylaws; (v) amendment or repeal of any
resolution of the Board which by its express terms is not so
amendable or repealable; (vi) declaring distributions to the
stockholders of the Company except at a rate or in a periodic
amount or within a price range determined by the Board; (vii)
appointment of members of other committees of the Board.
Messrs. Kesler, Guerra, and Dabbene are members of the Executive
Committee and will continue as members conditioned upon their
re-election to the Board for the ensuing year.
In February 1988, the Board approved the creation of a
standing Audit Committee. Messrs. Akle and Morales are members
of the Audit Committee and will continue as members conditioned
upon their re-election to the Board. The duties of the Audit
Committee are to review with the Company's independent auditors
the results of the audit engagement, review the adequacy of the
Company's system of accounting controls, approve the services
rendered by the independent auditors, and examine the range of
audit and non-audit fees. The Audit Committee met once during
the twelve months ended December 31, 1997.
Mr. Morales and Dr. Akle have are members of the
Compensation Committee and will continue as members conditioned
8<PAGE>
upon their re-election to the Board. The duties of the
Compensation Committee are to research and recommend to the
Board of Directors compensation structures for key executive
personnel. The Compensation Committee met once during the year
ended December 31, 1997.
Executive Officers
The following lists the names, ages, and position of the
Company's current executive officers:
<TABLE>
<S> <C> <C> <C>
Officer
Name Age Since Current Position with the Company
-----------------------------------------------------------------------------
Grant S. Kesler 54 1991 President, Chief Executive Officer,
Director
Javier Guerra Cisneros 51 1994 Vice President - Mexican Operations,
Director
Anthony C. Dabbene 46 1996 Chief Financial Officer, Director
Bruce H. Haglund 46 1983 Secretary, General Counsel
Donald K. Yamano 52 1997 President, Metalclad Insulation Corp.
</TABLE>
Grant S. Kesler. See Information about Nominees and
Directors.
Anthony C. Dabbene. See Information about Nominees and
Directors.
Javier Guerra Cisneros. See Information about Nominees and
Directors.
Bruce H. Haglund has served as Secretary of the Company
since 1983 and previously served as a Director of the Company
from 1983 to 1991. Since April 1994, Mr. Haglund has been a
partner in the law firm of Gibson, Haglund & Johnson. From 1991
to April 1994, Mr. Haglund was a principal in the law firm of
Phillips, Haglund, Haddan & Jeffers. From 1984 to February
1991, he was a partner in the law firm of Gibson & Haglund. Mr.
Haglund is also the Secretary and a member of the Board of
Directors of GB Foods Corporation and Aviation Distributors,
Inc. and the Secretary of Renaissance Golf Products, Inc.,
companies whose stock is publicly traded. He is a graduate of
the University of Utah College of Law.
Bruce H. Haglund has served as Secretary-General Counsel of
the Company since 1983 and served as a Director of the Company
from 1983 to July 1991. Since April 1994, Mr. Haglund has been
a principal in the law firm of Gibson, Haglund & Johnson. From
February 1991 to April 1994, Mr. Haglund was a principal in the
law firm of Phillips, Haglund, Haddan & Jeffers. From 1984 to
February 1991, he was a partner in the law firm of Gibson &
9<PAGE>
Haglund. Mr. Haglund is also a member of the Board of Directors
of GB Foods Corporation, the Secretary and a member of the Board
of Directors of Aviation Distributors, Inc., and the Secretary
of Renaissance Golf Products, Inc., companies whose stock is
publicly traded. He is a graduate of the University of Utah
College of Law.
Donald K. Yamano has been the President and Chief Executive
Officer for Metalclad Insulation since June, 1997. His prior
experience encompasses Engineering, Design and Construction
operational management positions in the power, petrochemical,
natural gas and environmental/process industries. The last 15
years has been in Senior Management for LG&E Power, serving as
President and CEO of LG&E Power Engineers and Constructors, Inc.
since 1992. He received a BS degree in Mechanical Engineering
from California State Polytechnic University and is a Registered
Licensed Professional Engineer in California and Texas.
Executive Compensation for the Year Ended December 31, 1997
The following table sets forth for the year ended December
31, 1997, the seven months ended December 31, 1996, and fiscal
years ended May 31, 1996 and 1995, information with respect to
compensation paid by the Company to the Chief Executive Officer
and each of the other highly compensated executive officers of
the Company for the year 1997.
Summary Compensation Table
<TABLE>
<S><C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
NAME AND OTHER AWARDS PAYOUTS ALL
PRINCIPAL YEAR SALARY BONUS ANNUAL
POSITION (1) (1) ($) ($) COMPEN- RESTRICTED OPTIONS/ LTIP OTHER
SATION STOCK SARS PAYOUTS (2)
($) ($) (#) ($)
------------------------------------------------------------------------------------------------------------
Grant S. Kesler, 1997 250,000 50,000
C.E.O. 7 Mos. 1996 116,662 200,000 12,320
Fiscal 1996 200,004 50,000 37,583
Fiscal 1995 200,016 28,194 40,000
------------------------------------------------------------------------------------------------------------
Anthony C. Dabbene 1997 160,000 36,000
C.F.O. 7 Mos. 1996 75,000 12,000 5,500
Fiscal 1996 43,333
------------------------------------------------------------------------------------------------------------
Javier Guerra 1997 200,00 10,000
Cisneros, 7 Mos. 1996 110,525 16,700
Vice President- Fiscal 1996 137,000 10,000
Mexican Operations Fiscal 1995 164,000
------------------------------------------------------------------------------------------------------------
Donald K. Yamano 1997 63,201 12,000
------------------------------------------------------------------------------------------------------------
</TABLE>
10<PAGE>
(1) Does not include information for the years prior to 1997 in
the case of Mr. Yamano because he was not employed by the
Company prior to June 1997.
(2) The remuneration described in the table does not include
the cost to the Company of benefits furnished to the named
executive officers, including premiums for health insurance and
other personal benefits provided to such individual that are
extended to all employees of the Company in connection with
their employment.
Employment Agreements
In January 1998, the Compensation Committee of the Company
approved employment agreements for Messrs. Kesler, Dabbene and
Guerra. In the case of Messrs. Kesler and Dabbene, the
contracts are for a three-year period, effective January 1, 1998
and call for annual salaries of $250,000 and $180,000,
respectively. In the case of Mr. Guerra, his contract is with
ECONSA, the Company s Mexican holding company subsidiary, and is
also for three years, effective January 1, with an annual salary
of $200,000 USD converted to Mexican pesos each January 1.
These agreements also provide for severance compensation at the
rate of six times the monthly salary in effect at the time. The
agreements further provide for severance compensation equal to
three times the employee s highest annual salary and bonus for
termination following a change in control of the Company.
In June 1997, the Company entered into a one-year
employment agreement with Mr. Yamano. The agreement provides for
an annual base salary of $120,000 and an annual bonus of 10%.
The agreement also provided for the grant of 25,000 stock
options, excercisable at $1.25 and vesting over a five-year
period.
Options Granted in 1997
In January 1997, the Board of Directors approved the grant
of 500,000 nonstatutory stock options to Grant S. Kesler, the
Company s Chief Executive Officer, at an exercise price of
$1.625 per share. Such options are fully vested and expire
January 2, 2002.
In June 1997, the Company granted 25,000 options
exercisable at $1.25 to Donald K. Yamano as part of his
compensation package to join the Company. These options vest
over five years and expire on June 1, 2007.
Options Granted in 1998
In January 1998, the Board of Directors approved the grant
of non-statutory stock options, exercisable at $1.50 per share
to the following officers and directors: Mr. Kesler, 800,000
11<PAGE>
shares; Mr. Guerra, 600,000 shares; Mr. Dabbene, 350,000 shares;
Mr. Yamano, 25,000 shares; and Mr. Haglund, 25,000 shares.
Aggregated Option/SAR Exercises in the year ended December
31, 1997, and Option Values at December 31, 1997
The following table sets forth the number of options, both
exercisable and unexercisable, held by each of the named
executive officers of the Company and the value of any in-the-
money options at December 31, 1996 (assuming a market value of
$1.094 on December 31, 1997):
<TABLE>
<S> <C> <C> <C> <C>
Number of Value of
Unexercised in-the-Money
Options at Options at
December 31, December 31,
Shares 1997 1997
Acquired Value
on Exercise Realized Exercisable/ Exercisable/
(#) ($) Unexercisable Unexercisable
-------------------------------------------------------------------------------------------------------
Grant S. Kesler -0- $-0- 1,395,000/-0- $-0-/$-0-
Javier Guerra Cisneros -0 $-0- 650,000/100,000 $-0-/$-0-
Anthony C. Dabbene -0- $-0- 500,000/-0- $-0-/$-0-
Donald K. Yamano -0- $-0- 25,000/-0- $-0-/$-0-
</TABLE>
Stock Option Plans
Incentive Stock Option Plan. On May 12, 1989, the
stockholders adopted the Metalclad Corporation 1988 Incentive
Stock Option Plan (referred to collectively as the ISOP ). The
purpose of the ISOP is to provide full-time employees of the
Company with an added incentive to continue their service to the
Company and to induce them to exert maximum efforts toward the
Company's success.
The ISOP, which is currently administered by the Board of
Directors, also provides for administration by a stock option
committee which may be appointed by the Board of Directors.
Among other things, the Board of Directors or the committee has
the authority to determine the employees to be granted options
under the ISOP and the number of shares subject to each option.
The exercise price of any option granted under the ISOP, which
shall be determined by the Board of Directors, shall not be less
than the fair market value of the shares subject to the option
on the date of grant; provided, however, that the exercise price
of any option granted to an eligible employee owning more than
10% of the Common Stock shall not be less than 110% of the fair
market value of the shares underlying such option on the date of
grant. The term of each option and the manner in which it may
be exercised is determined by the Board of Directors or
12<PAGE>
committee, provided that no option may be exercisable more than
five years after the date of grant. The ISOP limits the value
of Common Stock with respect to which options may be granted to
any one employee in a calendar year. All options granted under
the ISOP are non-transferable and terminate within a specified
period of time following termination of employment with the
Company. The aggregate fair market value of shares for which
options granted to any employee are exercisable for the first
time by such employee during any calendar year (under all stock
option plans of the Company and any related corporation) may not
exceed $100,000.
The Board of Directors is authorized to modify, amend or
terminate the ISOP; provided, however, any amendment that would
increase the aggregate number of shares which may be issued,
materially increase the benefits accruing to participants or
materially modify the requirements as to eligibility for
participation, is subject to the approval of the stockholders of
the Company. No termination, modification or amendment of the
Plan may, without consent of an optionee, adversely affect the
optionee's rights under an option previously granted.
Options for the purchase of 175,500 shares of Common Stock
have been granted pursuant to the ISOP as of the date of this
Proxy Statement, of which 165,500 have been exercised and 10,000
have expired. As of the date of this Proxy Statement, there are
no options outstanding under this plan.
Non-Qualified Stock Option Plan. In 1984, the Company
adopted a nonstatutory stock option plan (the NQSOP ) for
individuals who acted as consultants to the Company and who were
actively involved in the development of the business of the
Company. The NQSOP provided for the issuance of a maximum of 5%
of the shares of Common Stock outstanding from time to time at
prices not less than the fair market value thereof on the date
of grant. The NQSOP terminated in 1989; however, outstanding
options are exercisable over a five-year period from the date of
grant. Each option lapsed, if not previously exercised, on the
fifth anniversary of the date of grant or after 90 days after
the optionee has terminated his continuous activity with the
Company.
No options under the NQSOP were outstanding as of the date
of this Proxy Statement.
1992, 1993 and 1997 Omnibus Stock Option and Incentive
Plans. On August 18, 1992, the Board of Directors of the
Company adopted the 1992 Omnibus Stock Option Plan (the 1992
Plan ) which was approved by the stockholders on November 13,
1992. On March 24, 1993, the Board of Directors of the Company
adopted the 1993 Omnibus Stock Option Plan (the 1993 Plan ).
On May 15, 1997, the stockholders adopted the 1997 Omnibus Stock
Option and Incentive Plan. The 1992 Plan, the 1993 Plan and the
1997 Plan (together hereinafter referred to the Plans ) are
13<PAGE>
intended to provide incentive to key employees and directors of,
and key consultants, vendors, customers, and others expected to
provide significant services to, the Company, to encourage
proprietary interest in the Company, to encourage such key
employees to remain in the employ of the Company and its
subsidiaries, to attract new employees with outstanding
qualifications, and to afford additional incentive to
consultants, vendors, customers, and others to increase their
efforts in providing significant services to the Company.
Pursuant to the terms of the Plans, the following types of
incentives may from time to time be granted on a discretionary
basis by the Board or the Committee: incentive stock options
( Incentive Stock Options ), nonstatutory stock options
( Nonstatutory Stock Options ), purchase rights ( Purchase
Rights ), stock appreciation rights ( Stock Appreciation
Rights ), performance awards ( Performance Awards ), dividend
rights ( Dividend Rights ), and stock payments ( Stock
Payments ), referred to hereinafter singly as Award and
collectively as Awards , as the context may require. The Plans
also provide for the grant of Incentive Stock Options and
Nonstatutory Stock Options to members of the Board of Directors
on a formula award basis as provided in Rule 16b-3 of the
Securities Exchange Act of 1934 ( Rule 16b-3 ).
As of the date of this Proxy Statement, stock options for
the purchase of 826,000 and 380,000 shares at $2.25 per share
are outstanding pursuant to the 1992 Plan and the 1993 Plan,
respectively. There are no outstanding options under the 1997
Plan.
As of the date of this Proxy Statement, options granted
pursuant to the 1992 Plan and the 1993 Plan for the purchase of
756,000 and 326,000 shares, respectively, were vested.
The Plans provide for administration by the Board in
compliance with Rule 16b-3, or by a Committee (the Committee )
appointed by the Board, which Committee must be constituted to
permit the Plans to comply with Rule 16b-3, and which must
consist of not less than two members, each of whom has not
participated in the Plans by way of receipt of any discretionary
grant of an Award, and who will not so participate while
serving as a member of the Committee, and each of whom has not
participated under any other plan or have received options of
the Company during the year preceding adoption of the 1992 Plan,
the 1993 Plan or the 1997 Plan by the stockholders at the
Meeting. A member of the Board or a Committee member may in no
event participate in any determination relation to Awards held
by or to be granted on a discretionary basis to such Board or
Committee member.
All employees of the Company or of a subsidiary of the
Company, who may be officers or directors of the Company, and
consultants, vendors, customers, and others expected to provide
significant services to the Company or any of its subsidiaries,
14<PAGE>
are eligible to participate in the Plans. No Incentive Stock
Option may be granted to a non-employee director or non-employee
consultant, vendor, customer, or other provider of significant
services to the Company or a subsidiary, and except that no
Nonstatutory Stock Option may be granted to a non-employee
director or non-employee consultant, vendor, customer, or other
provider of significant services to the Company or a subsidiary
other than upon a vote of a majority of disinterested directors
finding that the value of the services rendered or to be
rendered to the Company or a subsidiary by such non-employee
director or non-employee consultant, vendor, customer, or other
provider of services is at least equal to the value of the
options granted.
The aggregate number of shares of the Company's authorized
but unissued Common Stock which may be issued as an Award or
which may be issued upon exercise of an Incentive Stock Option
or Nonstatutory Stock Option under the 1992 Plan may not exceed
1,600,000 shares. The number of shares subject to unexercised
options, Stock Appreciation Rights or Purchase Rights granted
under the 1992 Plan (plus the number of shares previously issued
under the 1992 Plan) may not at any time exceed the number of
shares available for issuance under the 1992 Plan. The
aggregate number of shares of the Company's authorized but
unissued Common Stock which may be issued as an Award or which
may be issued upon exercise of an Incentive Stock Option or
nonstatutory stock option under the 1993 Plan may not exceed
1,000,000 shares. The number of shares subject to unexercised
options, Stock Appreciation Rights or Purchase Rights granted
under the 1993 Plan (plus the number of shares previously issued
under the 1993 Plan) may not at any time exceed the number of
shares available for issuance under the 1993 Plan. The
aggregate number of shares of the Company's authorized but
unissued Common Stock which may be issued as an Award or which
may be issued upon exercise of an Incentive Stock Option or
nonstatutory stock option under the 1997 Plan may not exceed
6,000,000 shares. The number of shares subject to unexercised
options, Stock Appreciation Rights or Purchase Rights granted
under the 1997 Plan (plus the number of shares previously issued
under the 1997 Plan) may not at any time exceed the number of
shares available for issuance under the 1997 Plan.
In the event that any unexercised option, Stock
Appreciation Right or Purchase Right, or any portion thereof,
for any reason expires or is terminated, or if any shares
subject to a restricted stock Award do not vest or are not
delivered, the unexercised or unvested shares allocable to such
Award may again be made subject to any Award.
Options. Incentive Stock Options and Nonstatutory Stock
Options (together hereinafter referred to as Option or
Options , unless the context otherwise requires) must be
evidenced by written stock option agreements in such form as the
Committee may from time to time determine. Each Option must
15<PAGE>
state the number of Shares to which it pertains and must provide
for the adjustment thereof if the outstanding shares of Common
Stock are changed into or exchanged for cash or a different
number or kind of shares or securities of the Corporation, or if
the outstanding shares of the Common Stock are increased,
decreased, exchanged for, or otherwise changed, or if additional
shares or new or different shares or securities are distributed
with respect to the outstanding shares of the Common Stock,
through a reorganization or merger in which the Corporation is
the surviving entity or through a combination, consolidation,
recapitalization, reclassification, stock split, stock dividend,
reverse stock split, stock consolidation or other capital change
or adjustment. In addition, the Board or the Committee may
grant such additional rights in the foregoing circumstances as
the Board or the Committee deems to be in the best interest of
any Participant and the Corporation in order to preserve for the
Participant the benefits of the Award.
The exercise price in the case of any Incentive Stock
Option may not be less than the fair market value on the date of
grant and, in the case of any Option granted to an optionee who
owns more than ten percent (10%) of the total combined voting
power of all classes of outstanding stock of the Company, may
not be less than 110% of the fair market value on the date of
grant. The exercise price in the case of any Nonstatutory Stock
Option may not be less than 85% of the fair market value on the
date of grant.
The purchase price is be payable in full in United States
dollars upon the exercise of the Option; provided, however, that
if the applicable Option agreement so provides, the purchase
price may be paid (i) by the surrender of Shares in good form
for transfer, owned by the participant and having a fair market
value on the date of exercise equal to the purchase price, or in
any combination of cash and Shares, as long as the sum of the
cash so paid and the fair market value of the Shares so
surrendered equals the purchase price, (ii) by cancellation of
indebtedness owed by the Company to the participant, (iii) with
a full recourse promissory note executed by the participant, or
(iv) any combination of the foregoing. The interest rate and
other terms and conditions of such note may be determined by the
Board or the Committee. The Board or Committee may require that
the participant pledge his or her Shares to the Company for the
purpose of securing the payment of such note. In no event may
the stock certificate(s) representing such Shares by released to
the participant until such note shall be been paid in full.
Each Option must state the time or times which all or part
thereof becomes exercisable. No Option shall be exercisable
after the expiration of 10 years from the date it was granted,
and no Option granted to an optionee who owns more than 10% of
the total combined voting power of all classes of outstanding
stock of the Company may be exercisable after the expiration of
five years from the date it was granted. During the lifetime of
16<PAGE>
a participant in the Plans, the Option may be exercisable only
by that participant and may not be assignable or transferable.
In the event of the participant's death, the Option may not be
transferable by the participant other than by will or the laws
of descent and distribution.
Within the limitations of the Plans, the Board or Committee
may modify, extend or renew outstanding Options or accept the
cancellation of outstanding Options (to the extent not
previously exercised) for the granting of new Options in
substitution therefor. No modification of an Option may,
without the consent of the participant, alter or impair any
rights or obligations under any Option previously granted.
In the case of Incentive Stock Options granted under the
Plans, the aggregate fair market value (determined as of the
date of the grant thereof) of the Shares with respect to which
Incentive Stock Options become exercisable by any participant
for the first time during any calendar year (under the Plans and
all other plans maintained by the Company may not exceed
$100,000. The Board or Committee may, however, with the
participant's consent, authorize an amendment to the Incentive
Stock Option which renders it a Nonstatutory Stock Option.
The stock option agreements authorized under the Plans may
contain such other provisions not inconsistent with the terms of
the Plans (including, without limitation, restrictions upon the
exercise of the Option) as the Board or the Committee shall deem
advisable.
Restricted Stock Purchase Agreements. Restricted stock
purchase rights (hereinabove defined as Purchase Rights ) must
be evidenced by written stock purchase agreements in such form
as the Committee must from time to time determine. Each
Purchase Right must state the number of Shares to which it
pertains and may provide for the adjustment thereof in the event
that the outstanding shares of Common Stock are changed into or
exchanged for cash or a different number or kind of shares or
securities of the Corporation, or if the outstanding shares of
the Common Stock are increased, decreased, exchanged for, or
otherwise changed, or if additional shares or new or different
shares or securities are distributed with respect to the
outstanding shares of the Common Stock, through a reorganization
or merger in which the Corporation is the surviving entity or
through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock
split, stock consolidation or other capital change or
adjustment. In addition, the Board or the Committee may grant
such additional rights in the foregoing circumstances as the
Board or the Committee deems to be in the best interest of any
Participant and the Corporation in order to preserve for the
Participant the benefits of the Award.
Each agreement must state the purchase price per Share at
17<PAGE>
which the Purchase Right may be exercised, which may not be less
than the fair market value of a Share on the date on which the
Purchase Rights are granted. Unless the Board or Committee
otherwise determines, the purchase price per Share at which any
Purchase Right granted under the Plans may be exercised may not
be less than the fair market value of a Share as of the date on
which the Purchase Right is granted, less a discount equal to
not more than 75% of such value.
Purchase Rights must be exercised within 60 days after the
later to occur of (i) Board approval of the grant of the
Purchase Right or (ii) delivery of notice of such grant.
Purchase Rights may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner and must
expire immediately upon the death of the participant or the
termination of such participant's employment with the Company.
The purchase price must be payable in full in United States
dollars upon exercise of the Purchase Right; provided, however,
that if the applicable agreement so provides, the purchase price
may be paid (i) by the surrender of Shares in good form for
transfer, owned by the person exercising the Purchase Right and
having a fair market value on the date of exercise equal to the
purchase price, or in any combination of cash and Shares, as
long as the sum of the cash so paid and the fair market value of
the Shares so surrendered equal the Purchase Price, or (ii) with
a full recourse promissory note executed by the participant.
The interest rate and other terms and conditions of such note
must be determined by the Board or the Committee. The Board or
Committee may require that the participant pledge his or her
Shares to the Company for the purpose of securing the payment of
such note. In no event may the stock certificate(s)
representing such Shares be released to the participant until
such note has been paid in full. In the event the Company
determines that it is required to withhold state or Federal
income tax as a result of the exercise of a Purchase Right, as a
condition to the exercise thereof, a participant may be required
to make arrangements satisfactory to the Company to enable it to
satisfy such withholding requirements. In addition, the
participant must agree to immediately notify the Company if he
or she files an election pursuant to Section 83(b) of the
Internal Revenue Code with respect to receipt of the Shares.
Within the limitations of the Plans, the Board or the
Committee may modify, extend or renew outstanding Purchase
Rights or accept the cancellation of outstanding Purchase Rights
(to the extent not previously exercised) for the granting of new
Purchase Rights in substitution therefor. The foregoing
notwithstanding, no modification of a Purchase Right may,
without the consent of the participant, alter or impair any
rights or obligations under any Purchase Right previously
granted.
In the event of the voluntary or involuntary termination or
18<PAGE>
cessation of employment or association of a participant with the
Company or any Subsidiary for any reason whatsoever, with or
without cause (including death or disability), the Company may,
upon the date of such termination, have an irrevocable,
exclusive option to repurchase (the Repurchase Option ) all or
any portion of the Shares held by the Employee that are subject
to the Repurchase Option as of such date at the original
purchase price.
Initially, all of the Shares must be subject to the
Repurchase Option. Thereafter, the Repurchase Option must lapse
and expire, or vest, as to a specified number of the Shares in
accordance with a schedule to be determined by the Board or the
Committee, as the case may be, which must be attached to the
stock purchase agreement to be entered into between the
participant and the Company. All Shares which continue to be
subject to the Repurchase Option are sometimes hereinafter
referred to as Unvested Shares. Within 90 days following the
date of the Participant's termination of employment by the
Corporation, the Corporation shall notify the Employee as to
whether it wishes to repurchase the Unvested Shares pursuant to
the exercise of the Repurchase Option. If the Corporation
elects to repurchase said Unvested Shares, it must set a date
for the closing of the transaction at the Executive Offices of
the Corporation, not later than 30 days from the date such
notice.
Except for transfers to participant's descendants and
spouses, the participant may not transfer by sale, assignment,
hypothecation, donation, or otherwise any of the Shares or any
interest therein prior to the release of such Shares from the
Repurchase Option. The Company's Repurchase Option may be
assigned in whole or in part to any stockholder or stockholders
of the Company or other persons or organizations. Each stock
purchase agreement entered into as provided herein must provide
for a right of first refusal and option on the part of the
Company to purchase all or any part of any Shares which are no
longer subject to the Repurchase Option which the participant
purposes to sell, transfer or otherwise dispose of (except for
transfers to participant's descendants and spouses) on the
condition that: (a) the participant must notify the Company in
writing of any proposed sale, transfer or other disposition of
any of the Shares, specifying the proposed transferee, the
number of Shares proposed to be transferred, and the price at
which such Shares are to be sold, transferred or otherwise
disposed; (b) the Company must have a period of 30 days from
receipt of such notice to notify the participant in writing as
to whether or not the Company elects to purchase all or a
specified portion of such Shares at the lower of (i) price per
share set forth in the notice given by the participant, or (ii)
the fair market value for a share of the Company's Common Stock,
without restrictions, on the date on which the notice is given
by participant to the Company, less in either case an amount
equal to the discount, if any; (c) if the Company elects not to
19<PAGE>
purchase all of the Shares specified in the notice, the
participant may sell, transfer or otherwise dispose of the
remaining Shares in strict accordance with the terms specified
in the notice within 90 days following the date of the notice.
Any transferee of any of such Shares (other than the Company)
will take and acquire all of such Shares subject to the
continuing right o first refusal and option on the part of the
Company to purchase all or any portion of such Shares from the
transferee on all of the same terms and conditions as are set
forth in the stock purchase agreement, unless the participant
shall have paid to the Company, out of the proceeds from the
sale of such Shares or otherwise, an amount equal to the lesser
of (i) the discount or (ii) the amount by which the fair market
value for a share of the Company Common Stock, without
restrictions, on the date on which the notice is given by
participant to the Company exceeds the price per Share paid by
the participant for such Shares.
Stock Appreciation Rights. Stock Appreciation Rights
related or unrelated to Options or other Awards may be granted
to eligible employees: (i) at any time if unrelated to an Award
or if related to an Award other than an Incentive Stock Option;
or (ii) only at the time of grant of an Incentive Stock Option
if related thereto. A Stock Appreciation Right may extend to
all or a portion of the shares covered by a related Award.
A Stock Appreciation Right granted in connection with an
Award may be exercisable only at such time or times, and to the
extent, that a related Award is exercisable. A Stock
Appreciation Right granted in connection with an Incentive Stock
Option may be exercisable only when the fair market value of the
stock subject to the Incentive Stock Option exceeds the exercise
price of the Incentive Stock Option. Upon the exercise of a
Stock Appreciation Right, and if such Stock Appreciation Right
is related to an Award surrender of an exercisable portion of
the related Award, the participant shall be entitled to receive
payment of a amount determined by multiplying the difference
obtained by subtracting the purchase price of a share of Common
Stock specified in the related Award, or if such Stock
Appreciation Right is unrelated to an Award, from the fair
market value, book value or other measure specified in the Award
of such Stock Appreciation Right of a share of Common Stock on
the date of exercise of such Stock Appreciation Right, by the
number of shares as to which such Stock Appreciation Right has
been exercised.
The Board or the Committee, as the case may be, in its sole
discretion, may require settlement of the amount determined
under paragraph (i) above solely in cash, solely in shares of
Common Stock valued at fair market value, or partly in such
shares and partly in cash. Each Stock Appreciation Right and
all rights and obligations thereunder must expire on such date
as shall be determined by the Board or the Committee, but not
later than 10 years after the date of the Award thereof, and
20<PAGE>
must be subject to earlier termination as provided in the Plans.
Performance Awards. One or more Performance Awards may be
granted to any eligible employee. The value of such Awards may
be linked to the market value, book value or other measure of
the value of the Common stock or other specific performance
criteria determined appropriate by the Board or the Committee,
in each case on a specified date or over any period determined
by the Board or the Committee, or may be based upon the
appreciation in the market value, book value or other measure of
the value of a specified number of shares of Common stock over a
fixed period determined by the Board or the Committee. In
making such determinations, the Board or the Committee may
consider (among such other factors as it deems relevant in light
of the specific type of award) the contributions,
responsibilities, and other compensation of the participant.
Dividend Equivalents. A participant may also be granted
Dividend Rights based on the dividends declared on the Common
Stock, to be credited as of dividend payment dates, during the
period between the date of grant of the Award and the date such
Award is exercised, vests or expires, as determined by the Board
or the Committee. Such Dividend Rights may be converted to cash
or additional shares of Common Stock by such formula and at such
time and subject to such limitations as may be determined by the
Board or the Committee.
Stock Payments. The Board or the Committee may approve
Stock Payments to eligible employees who elect to receive such
payments in the manner determined from time to time by the Board
or the Committee. The number of shares must be determined by
the Board or the Committee and may be based upon the fair market
value, book value or other measure of the value of such shares
on the date the Award is granted or on any date thereafter.
Loans. The Company may, with the Board's or the
Committee's approval, extend one or more loans to participants
in connection with the exercise or receipt of outstanding Awards
granted under the Plans. Such loans are subject to the
following conditions: (i) the principal of the loan may not
exceed the amount required to be paid to the Corporation upon
the exercise or receipt of one or more Awards under the Plans
less the aggregate par value of any Common Stock deliverable on
such event, and the loan proceeds must be paid directly to the
Corporation in consideration of such exercise or receipt; (ii)
the initial term of the loan must be determined by the Board or
the Committee; provided that the term of the loan, including
extensions, may not exceed a period of ten years; (iii) the loan
must be with full recourse to the participant, must be evidenced
by the participant's promissory note and must bear interest at a
rate determined by the Board or the Committee but not less than
the Company's average cost of funds as of a date within 31 days
of the date of such loan, as determined by the Board or the
Committee; and iv) in the event a participant terminates his or
21<PAGE>
her employment at the request of the Company, the unpaid
principal balance of the note must become due and payable on the
tenth business day after such termination; provided, however,
that if a sale of such shares would cause such participant to
incur liability under Section 16(b) of the Exchange Act, the
unpaid balance may become due and payable on the 10th business
day after the first day on which a sale of such shares could
have been made without incurring such liability assuming for
these purposes that there are no other transactions by the
participant subsequent to such termination. In the event a
participant terminates employment other than at the request of
the Company, the unpaid principal balance of the note becomes
due and payable six months after the date of such termination.
Termination, Suspension and Amendment. The Board of
Directors or the Committee may, at any time, suspend, amend,
modify of terminate the Plans (or any part thereof) and may,
with the consent of the recipient of an Award, authorize such
modifications of the terms and conditions of such participant's
Award as it shall deem advisable. However, no amendment or
modification of the Plans may be adopted without approval by a
majority of the shares of the Common Stock represented (in
person or by proxy) at a meeting of stockholders at which a
quorum is present and entitled to vote thereat, if such
amendment or modification would materially increase the benefits
accruing to participants under the Plans within the meaning of
Rule 16b-3 under the Exchange Act or any successor provision;
materially increase the aggregate number of shares which may be
delivered pursuant to Awards granted under the Plans; or
materially modify the requirements of eligibility for
participation in the Plans.
Compliance With Section 16 (a) of the Exchange Act
Section 16 (a) of the Securities Exchange Act of 1934
requires the Company's officers, directors, and persons who own
more than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the SEC ).
Officers, directors, and greater than 10% beneficial owners are
required by SEC regulation to furnish the Company with copies of
all Section 16 (a) forms they file. The Company believes that
all filing requirements applicable to its officers, directors,
and greater than 10% beneficial owners were complied with.
Section 401 (k) Plan
In December 1989, the Company adopted a tax-qualified cash
or deferred profit sharing plan (the 401 (k) Plan ) covering
all employees who have completed six months of continuous
service prior to a plan entry date. Pursuant to the 401 (k)
Plan, eligible employees may make salary deferral (before tax)
contributions of up to 15% of their total compensation per plan
year up to a specified maximum contribution as determined by the
22<PAGE>
Internal Revenue Service. The 401 (k) Plan also includes
provisions which authorize the Company to make discretionary
contributions. Such contributions, if made, are allocated among
all eligible employees as determined under the 401 (k) Plan.
The trustees under the 401 (k) Plan invest the assets of each
participant's account attributable to the Company's contribution
in an equity fund or guaranteed income fund until the
participant is fully vested. The trustees invest the assets at
the direction of such participant for the portion attributable
to the participant's contribution and the portion attributable
to the Company's contribution if the participant is fully
vested. No contributions were made to the 401 (k) Plan during
the year ended December 31, 1997.
Certain Relationships and Related Transactions
In October 1994, in consideration of extraordinary
contributions to the Company, including but not limited to the
pledge of 755,000 shares of Common Stock of the Company owned by
them to facilitate necessary financing for the Company, the
Board of Directors approved the loan of $325,000 to each of Mr.
Kesler and Mr. Neveau. Such borrowings were due 30 days after
demand and were secured by a pledge of 300,000 shares of the
Company s common stock from each. Interest on such loans was
the prime rate of interest plus 7% per annum. In February 1996,
Mr. Kesler and Mr. Neveau each repaid $150,000 of such loan. In
March 1996, the notes were amended to modify the loan principal
between Mr. Kesler ($490,000 principal balance at March 1, 1996)
and Mr. Neveau ($160,000) as well as to adjust the interest rate
effective March 1, 1996 to a variable rate based on the
Company s quarterly investment rate. In June 1996, Mr. Neveau,
Chairman of the Board, Senior Vice President, and a Director of
the Company, resigned his positions. As a result, the Company
and Mr. Neveau renegotiated the terms of his employment
agreement relative to compensation, benefits and stock options.
Since May 1997, the company has been offsetting payments due Mr.
Neveau against his outstanding loan balance to the Company. As
of December 31, 1997, the Company s remaining receivable from
Mr. Neveau was $151,400. The Board of Directors has extended
repayment of these notes until December 31, 1998.
In December 1996, the Company loaned $150,000 to Mr. Javier
Guerra Cisneros, a Director and Vice President of Mexico
Operations. The loan is collateralized by 300,000 shares of
stock of the Company and is represented by a promissory note
bearing interest at 10%. In February, Mr. Guerra repaid
$120,000 of this note. The Board of Directors has extended
repayment of the remaining balance until December 31, 1998.
During the year ended May 31, 1997, the Company paid legal
fees of $47,000 to the law firm of Gibson, Haglund & Johnson, of
which Bruce H. Haglund, general counsel, secretary and board
nominee of the Company, is a principal. The Company intends to
continue to utilize the legal services of Gibson, Haglund &
23<PAGE>
Johnson for the following year.
Report of Compensation Committee
March 25, 1997
Board of Directors
Metalclad Corporation
3737 Birch Street, Suite 300
Newport Beach, California
As the Compensation Committee of Metalclad Corporation (the
Company ), it is our duty to review and recommend the
compensation levels for members of the Company s management,
evaluate the performance of management and the administration of
the Company s various incentive plans. This Committee has
reviewed in detail the compensation of the Company s executive
officers for the fiscal year ended December 31, 1997. In the
opinion of the Committee, the compensation of the executive
officers of the Company is reasonable in view of the Company s
performance and the respective contributions of such officers to
that performance.
In determining the management compensation, this Committee
evaluates the compensation paid to management based on their
performance, their experience, and the stage of development of
the Company. The Committee also takes into account such
relevant external factors as general economic conditions, stock
price performance, and stock market prices generally. In doing
the foregoing, the Committee has sought and obtained opinions
from outside professional advisors.
Management compensation is composed of salary, bonuses, and
options to purchase shares of Common Stock at the fair market
value on the date of grant. The number of options granted is
scaled to the salary of each individual officer.
The policies and underlying philosophy governing the
Company s compensation program are to: maintain a comprehensive
program that is competitive in the marketplace provide
opportunities integrating salary and stock rights to compensate
short and long-term performance of management, recognize and
reward individual accomplishments and allow the Company to hire
and retain seasoned executives who are essential to the
Company s success.
The base salaries for executive officers are determined by
evaluating the responsibilities of the positions held, the
individual s experience, the competitive marketplace, the
individual s performance of responsibilities an the individual s
overall contribution to the Company.
The Committee considers and recommends stock option grants
under the Company s stock option plans for key employees and
24<PAGE>
others who make substantial contributions to the financial
success of the Company. The Company and the Committee believe
that stock options provide strong incentive to increase the
value of stockholders interests. Stock options grants are
believed by the Committee to help focus management on the long-
term success of the Company. The amount of any stock option
grant is based primarily on an individual s responsibilities and
position with the Company. Individual awards of options are
affected by the Committee s subjective evaluation of factors it
deems appropriate such as the assumption of responsibilities,
competitive factors and achievements.
Significant to the Committee s recommendations concerning
executive compensation and option grants are significant events
which have occurred over time as well as objectives set for the
coming year. With regard to the year ended December 31, 1997,
the Company a) restructured its insulation group, returning it
to profitability; b) completed the repurchase of BFI-OMEGA
( ARI ) from BFI-Mexico; c) refocused ARI and has it on the path
to profitability; d) filed a comprehensive claim under the
NAFTA; and e) reduced the overall cost structure of the Company.
Additionally, the Company was successful in bringing a second
landfill project through the development stage. Lastly, the
Company was successful in raising the additional capital
necessary for its operations.
The executive officers devoted substantial time and effort
in achieving the aforementioned activities while at the same
time devoting significant time to the daily affairs of the
Company. The Committee believes that based upon these and other
factors, the compensation of the executive officers and the
grant to stock options as recommended are appropriate and
reasonable.
Compensation Committee
/s/Jose Akle F.
----------------------
Jose Akle F.
25<PAGE>
Comparison of Five-Year Cumulative Total Returns
Performance Report for Metalclad Corporation
[chart]
26<PAGE>
APPROVAL OF ENGAGEMENT OF AUDITORS
The Board of Directors has selected Arthur Andersen, LLP as
independent public accountant for the Company for the year
ending December 31, 1998, subject to approval by the
stockholders of the Company. Prior to such engagement, neither
the Company nor anyone on the Company's behalf consulted Arthur
Andersen, LLP regarding either the application of accounting
principles to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on
the Company's financial statements; or any matter that was the
subject of a disagreement with Arthur Andersen, LLP or a
reportable event. To the knowledge of the Company, at no time
has Arthur Andersen, LLP had any direct or indirect financial
interest in or any connection with the Company other than as
independent public accountants. It is anticipated that a
representative of Arthur Andersen, LLP will be available at the
Meeting to make a statement if so desired and to respond to
appropriate questions.
SUBMISSION OF SHAREHOLDER PROPOSALS
Stockholders are advised that any stockholder proposal
intended for consideration at the 1999 Annual Meeting must be
received by the Company on or before February 28, 1999 to be
included in any proxy materials prepared for the 1999 Annual
Meeting of Stockholders. It is recommended that stockholders
submitting proposals direct them to the Secretary of the Company
and utilize certified mail-return receipt requested to insure
timely delivery of the proposal.
MISCELLANEOUS AND OTHER MATTERS
Financial Statements
The Company's financial statements for the seven months
ended December 31, 1996, and the year ended December 31, 1997
appear on the pages following page 25 of its 1997 Annual Report
on Form 10-K which is being mailed to all stockholders along
with this Proxy Statement. Said pages are incorporated herein
by reference.
Matters Not Determined at the Time of the Solicitation
Management knows of no matters to come before the Meeting
other than as specified herein. If any other matter should come
before the Meeting, then the persons named in the enclosed form
of proxy will have discretionary authority to vote all proxies
with respect thereto in accordance with their judgment.
A COPY OF THE COMPANY'S CURRENT ANNUAL REPORT ON FORM 10-K
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING
27<PAGE>
THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, IS BEING MAILED
TO EACH SHAREHOLDER TOGETHER WITH THIS PROXY STATEMENT.
ADDITIONAL COPIES OF THE ANNUAL REPORT MAY BE OBTAINED BY
SHAREHOLDERS WITHOUT CHARGE BY WRITING TO: METALCLAD
CORPORATION, 2 CORPORATE PLAZA, SUITE 125, NEWPORT BEACH,
CALIFORNIA 92660.
